World Bank, IMF meetings must address debt, climate and nature in Africa
Creditors need to embrace innovative financing to help African economies cope with their growing debt burdens and address climate change and environmental degradation, according to new analysis from IIED and the United Nations Economic Commission for Africa (UNECA).
The report 'Innovative financing for Africa: harnessing debt for climate and nature' is being released ahead of the World Bank and IMF meetings where the economic impacts of the pandemic are expected to be top of the agenda. The report proposes a new model to massively scale up debt conversion and offer new bonds for investments that address climate change and nature loss.
Many African states have borrowed heavily to bankroll healthcare and social welfare during the pandemic with the average debt-to-GDP ratio expected to increase significantly to over 70% this year. At the same time most African countries are projected to lose between 2-5% of their GDP a year by 2030 as a result of climate change.
Researchers found Cape Verde, Kenya, Senegal, Uganda and Madagascar were at particular risk from large amounts of debt coupled with high vulnerability to climate change and biodiversity loss.
Andrew Norton, the director of IIED, said: “Instead of seeing increasing debt purely as a problem for African economies, we could harness it as part of the solution to the challenges of climate change and biodiversity loss.
“Linking borrowing to programmes designed to tackle these issues could protect the lives and livelihoods of millions of people who are already suffering the effects of global warming but have done the least to cause it.”
Jean-Paul Adam, the director for climate change at UNECA, said: “We have seen first-hand in the Seychelles how well debt conversion linked to climate and nature can work.
“This idea offers huge potential to other African economies and UNECA is keen to support countries to take it forward.”
African debtor countries have a strong case to make with creditors to link debt financing with increased spending on inclusive and growth-enhancing climate adaptation, mitigation, or nature investments. Debt financing from creditors would be paid against the African governments’ delivery of these investments.
The G20 Finance Ministers agreed the Debt Service Suspension Initiative last year but this only supports immediate relief on interest payments rather than systematic initiatives to redesign debt financing to support post-COVID recovery. The Annual Meetings are an opportunity to agree a more ambitious global approach involving debtor and creditor countries in debt, climate and nature.
China has a key role to play as the largest bilateral holder of African country debt and the host of the upcoming Convention on Biological Diversity (CBD) COP15.
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Notes to editors
'Innovative financing for Africa: harnessing debt for climate and nature' was written by Jean-Paul Adam, former finance minister of the Seychelles and the director of technology, climate change and natural resources management at UNECA; Laura Kelly, IIED’s director of Shaping Sustainable Markets; Paul Steele, chief economist for IIED; and Sejal Patel, environment economist at IIED.